Home ownership no longer barometer for the middle class as prices, interest rates squeeze salaries

It turns out that owning a home and earning a decent salary no longer guarantee a middle-class life.

As high prices and interest rates squeeze household budgets in the United States and Korea alike, what increasingly separates the middle class is whether a family can cover its debts and living costs, absorb an unexpected bill and still save for retirement.

The American Council of Life Insurers (ACLI) said in its September report that its Financial Resilience Index for the U.S. middle class fell 10 points in the second quarter from the first, to 10.

The index measures middle-class households' ability to handle unexpected expenses, sustain their quality of life and save for retirement. Built from 26 variables tied to middle-class finances, it generally runs between minus 100 and 100, with readings above zero indicating stronger resilience than the historical average.

The ACLI's accompanying survey, conducted Aug. 6 to 11 among 1,404 middle-class households earning $50,000 to $150,000 a year, found that 46 percent were worried about affording daily essentials over the next year. Forty percent cited health care services and 36 percent transportation. The share worried about transportation costs jumped from 26 percent a year earlier as gas prices rose.

The index plunged to minus-47.03 in the third quarter of 2022 in the aftermath of the Covid-19 pandemic. It recovered to the 30s in the first quarter of 2024 but began sliding again at the end of that year.

The ACLI attributed the latest decline to slowing wage growth and persistent inflation.

"Higher energy prices in [the second quarter] created acute cost pressures for middle-class households with rising gas prices pushing the 'Essentials' score farther into negative territory," the group said.

U.S. consumer prices rose 3.4 percent in August from a year earlier, according to the Bureau of Labor Statistics. The gasoline index jumped 3.9 percent from July on a seasonally adjusted basis and accounted for more than a third of the month's overall increase. The average 30-year fixed mortgage rate climbed above 7 percent last month for the first time since January of last year, according to Freddie Mac.

Households that look solidly middle class on paper but are too squeezed by debt and high prices to prepare for retirement are becoming the new face of the middle class.

In fact, middle-class Americans' own yardstick for success seems to be increasingly shifting toward retirement.

In an ACLI survey released in late May, 25 percent of middle-class households named having enough savings to retire at their desired age and quality of life as the financial goal that would most make them feel successful. That put retirement ahead of becoming debt-free at 18 percent, earning at least $150,000 a year at 9 percent and buying a home at 8 percent.

Yet 46 percent of middle-class Americans lacked confidence in their retirement savings, according to an ACLI survey released in April.

Kiplinger, a personal finance publication, recently examined the gap between a middle class defined by income and the households that can actually afford a middle-class life. Its article cites a 2025 Brookings Institution analysis that found a third of the middle class, defined as the middle 60 percent of earners, cannot afford the cost of living where they live.

Most people think of the middle class not as an income bracket but as a certain quality of life, the article noted, one in which a household can "buy a house, raise a family, save for retirement and have enough leftover for a vacation or two every year."

"It takes higher and higher incomes to achieve that quality of life," Kiplinger wrote.

Korea shows a similar gap between income and reality. The national average gasoline price has recently stayed above 1,800 won per liter ($5.04 per gallon). The upper end of fixed mortgage rates on five-year hybrid loans at the five major commercial banks is around 7 percent.

A recent analysis by the 100-Year Life Research Institute at NH Investment & Securities points the same way. It is based on microdata from the 2025 Survey of Household Finances and Living Conditions, released by the Ministry of Data and Statistics and other agencies.

By the Organisation for Economic Cooperation and Development's middle-income standard, 58.6 percent of Koreans and 52.9 percent of households are middle class. That covers households with an equivalized annual income, adjusted for household size, of 28.08 million won to 74.88 million won.

The institute then added five more conditions. A household had to spend at least 15.67 million won a year; have room to save at least 10 percent of its disposable income; hold net assets of 238.6 million won to 694.32 million won; spend no more than 30 percent of its disposable income on annual loan principal and interest; and be able to keep spending at a middle-class level after retirement.

Only 24.6 percent of households qualified as "truly middle class," which required meeting the income, spending and savings conditions plus at least two of the three on assets, debt and retirement readiness. Just 8 percent met all six.

In the 2025 survey itself, 51.9 percent of households whose heads have not yet retired said they were not well prepared for retirement. Among retired households, 55.6 percent said they did not have enough to cover living costs.

"After paying back the loan and covering child-rearing and other costs, things are tight every month and I have no room to save," said a 37-year-old surnamed Lee, who owns a home in Seoul and is in a dual-income household. "I wonder whether I am really middle class. I tell myself my home will somehow take care of my retirement, but honestly, I feel lost."

BY PARK YU-MI [[email protected]]